The Natural Gas Vehicle Coalition turned down the wrong highway this month when it endorsed an indefensible report by the Domestic Fuels Alliance. Better routes exist for the industry-including the gas utilities, producers, pipelines, and equipment manufacturers and suppliers that the NGVC claims as members.
"Big oil," DFA says, has received federal subsidies and therefore shouldn't resist government efforts to open vehicle fuel markets for gas and ethanol. Subsidies, in this view, include percentage depletion, the passive loss limitation exemption, the alternative minimum tax exemption, and expensing of exploration and development costs. Those and other forms of assistance, such as government outlays for the Strategic Petroleum Reserve, add up to hundreds of billions of dollars, the study says.
FIGHTING COMPETITION?
"The oil companies have established market presence through the assistance of government subsidies for petroleum," NGVC Executive Director Michael J. McGuire says in his endorsement of the study. "Now that same industry is fighting off all vestiges of competition, particularly competition that contributes to energy independence and improved health conditions."
There isn't room here for a detailed list of the errors in DFA's analysis. In general, it strains credibility to label as subsidies past or present tax mechanisms enacted to let producers, like all other businesses in the U.S., recover capital and avoid paying taxes on expenses. Equating those mechanisms with true demand subsidies-the mandate for ethanol in reformulated gasoline leaps to mind-is stupid.
Yet what if it were true? What if there had been a huge subsidy for petroleum? Wouldn't it then be imprudent for the government to subsidize competition against a fuel in which it had invested so much? This conclusion flows more logically from DFA's screwy assertions than does the silly claim that past subsidies justify new ones.
The worst part of the DFA study from the gas industry's point of view is its flagrant hostility toward oil and oil companies. Does anyone in the gas business need reminding that the industry wouldn't exist in the absence of oil? Does anyone think the U.S. would produce any gas at all if oil and gas companies had been forced to pay taxes on oil field investments and costs?
Gas producers stand to lose much from arguments such as DFA'S, which can unduly influence voters and officials unfamiliar with the taxation peculiarities of extractive industries. In a business now more integrated than ever before, when producers suffer, pipelines, marketers, storage operators, and distributors suffer, too, from the resulting threat to supply.
DFA has an obvious agenda and, in its study about petroleum "subsidies," strayed into an area about which it obviously knows very little. Its findings are easy to ignore.
STANCE HURTS GAS
McGuire and NGVC should know better. Endorsement of the DFA study casts undue suspicion on the financial essentials of resource development and conflicts with interests of natural gas and the industry that supplies it.
Market forces should and will determine the role gas plays in the vehicle fuels market and others. Saying so accommodates the interests more of consumers, the national economy, and the gas industry at large than of big oil companies-which are, after all, part of the industry. Gas surely will benefit as energy markets merge and competition among fuels intensifies. The industry should not let special-interest tactics of groups like NGVC and DFA spoil this promising future.
Copyright 1995 Oil & Gas Journal. All Rights Reserved.
